The DISER:2021 annual nickel price rise is driven by demand in the early stage and supply in the later period.

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The average price of nickel in 2021 is expected to be $18388 a tonne, 34 per cent higher than in 2020, according to the latest Resources and Energy Quarterly report released by the Australian Department of Industry, Science, Energy and Resources ((DISER)). Consumption of stainless steel and strong demand for electric car batteries contributed to early gains, while supply-side shocks contributed to later gains.

Global consumption

The growth of nickel consumption is blocked.

As the nickel industry continued to rebound after the outbreak, global nickel consumption increased by 14 per cent year-on-year in the September quarter of 2021. However, China's power cuts reduced nickel consumption by 3.3 per cent in the September quarter from a month earlier, while nickel consumption in the December quarter is also likely to be curbed. Nevertheless, global demand for nickel is expected to reach 2.8 million tons in 2021, an increase of 16 per cent over 2020. Demand is expected to continue to grow, reaching 2.9 million tons in 2022 and 3.1 million tons in 2023.

Nickel will play an increasingly important role in the global supply chain. The (USGS) of the United States Geological Survey has added nickel to its list of key minerals in 2021. The addition of nickel provides miners with access to US government subsidies, thereby encouraging greater supply. These effects are expected to become apparent after the forecast period.

Power restriction has become an obstacle to the rebound of stainless steel demand.

Despite the booming electric vehicle industry, stainless steel nickel still accounts for a major part of global nickel demand. As a result, China remains crucial to the nickel market, as it accounts for nearly 60 per cent of the world's stainless steel production. However, power cuts have led to a significant decline in China's stainless steel production, which was about 330000 tons in September, 24 per cent lower than expected. The decline in production means that demand for nickel fell by 26000 tons in September alone. October data show that demand will be equally sluggish throughout the December quarter. As winter begins in the northern hemisphere, energy demand will remain high, and power cuts are likely to continue at the beginning of 2022, limiting stainless steel production for at least the first half of 2022.

Despite China's production problems, global stainless steel production is expected to be 14 per cent higher in 2021 than in 2020, largely supported by government stimulus spending and strong Chinese production in the first half of 2021. Global stainless steel production growth is expected to slow to 6 per cent in 2022 and 4 per cent in 2023. This growth is expected to be driven by the expansion of Delong in Indonesia and Tsingshan in China, while stainless steel production in the US, Europe, Japan and Taiwan will remain relatively stable.

Expectations of future consumption growth in the battery industry

Accelerating demand for electric vehicles is driving up demand for nickel as part of a global decarbonization campaign. Global use of nickel for batteries is expected to increase by 60 per cent to 280000 tonnes in 2021, with China accounting for 75 per cent.

Battery use accounted for about 6 per cent of primary nickel consumption in 2020. However, with the increasing popularity of electric vehicles and the increased use of nickel in batteries, this proportion is expected to reach 12% by 2023. In the short term, this is likely to be driven by demand from the EU, China and the US, while local electric vehicle value chains in densely populated countries such as India and Indonesia are likely to push consumption beyond the forecast period. In addition, nickel is increasingly important in the electric vehicle supply chain, and refined nickel producers have reached several supply agreements with car and battery manufacturers.

Global production

Global nickel production is expected to increase in 2021

Global nickel production is expected to increase by 10 per cent to 2.7 million tons in 2021 as Indonesia increases production and other regions return to pre-outbreak levels. In the September quarter of 2021, mine production increased by 12 per cent year-on-year, while refined nickel production increased by 4.5 per cent year-on-year. Refined nickel production is expected to increase by 10 per cent to 2.6 million tons in 2021.

Nickel mining in Indonesia has basically returned to pre-epidemic levels and continues to grow. In the September quarter of 2021, Indonesia's mineral production increased by 3.9% month-on-month, up 29% from a year earlier.

Global nickel production is expected to grow by 7.7 per cent in 2022 and 9.3 per cent in 2023, mainly driven by an increase in mineral production in Indonesia.

Rising cost affects the output of refined nickel

Rising costs have seriously affected China's refined nickel production. Refined nickel production is an energy-intensive industry, and refined nickel production in 2021 is expected to be 6.6 per cent lower than in 2020 as rising energy costs lead to a decline in profitability (which was lower than the previous year as a result of the novel coronavirus outbreak). Cost pressure also comes from rising ore costs, with reduced shipments from the Philippines (affected by seasonal monsoons) forcing increased competition for freight. To reduce demand for nickel touch, the use of scrap nickel in china has risen by about 5 per cent.

The (NPI) cost of Indonesian nickel pig iron has also risen sharply with input costs, with energy prices rising by 50 per cent last year. However, Indonesian producers have access to local nickel supplies at government-regulated prices. Despite global cost pressures, Indonesia's refined nickel production rose 33 per cent year-on-year in the September 2021 quarter.

In terms of output

OCE expects global nickel production to be 2.663 million tonnes in 2021, up 10.1 per cent from 2.419 million tonnes in 2020. Growth rates are expected to be 7.7 per cent in 2022 and 9.3 per cent in 2023.

Global refined nickel production is expected to be 2.611 million tons in 2021, up 10.1 per cent from 2.372 million tons in 2020. Growth rates are expected to be 7.7 per cent in 2022 and 9.3 per cent in 2023.

Consumption

OCE expects global nickel consumption to be 2.767 million tons in 2021, up 16 percent from 2.385 million tons in 2020. Growth rates are expected to be 4.7 per cent in 2022 and 6.1 per cent in 2023.

Inventory

Nickel ending inventory in 2021 fell 34 per cent to 491000 tonnes from 647000 tonnes in 2020, and is expected to decline by 20.7 per cent and 5.2 per cent over the next two years.

In terms of price

OCE expects the average nominal price of LME nickel to be $18388 per tonne in 2021, up 33.5 per cent from $13769 per tonne in 2020. 2022 and 2023 are expected to be US $18596 and US $17184 per ton, respectively.

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